>Economic Cycles (GLOBAL ECONOMIC RESEARCH)

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Manufacturing activity continues its plunge. By the end of February, US industrial production was down 12% from its peak, Eurozone production by 12% and Japanese production by a significant 38%.

The March US manufacturing ISM index of 36.3 suggests that the rapid fall in manufacturing output is continuing. Historically, manufaturing stablises when the ISM survey reaches the high 40s. The ISM new orders index is picking up, as consumer demand has modesty improved in Q1` following two atrocious quarters, but the level of the new orders index is only 41.2, held back by the severe slump in machinery orders.

US consumer real disposable income is up 2.5% yoy as falls in energy prices, unemployment insurance and rising social security payments have substantially ameliorated the impact of the sharp rise in unemployment. Small-ticket purchases are up 1% yoy.

Big-ticket purchases, more important for Western manufacturing are bouncing from their lows, by february up 2.8% from the lows in December. The pick-up are ebbing, but a substantial rebound in confidence and in postponed demand, are unlikely until corporate restructuring finishes and the pace of job cuts lessen, most probably in Q3. In Europe too, car sales are posting strong rebounds, helped by government subsides on new car purchases.

To improve US credit availability, for when demand recovers, the New York is lending through the TALF facility to purchasers of new AAA asset backed securities (ABS), at 1% above LIBOR for three years, non-recourse to the borrower, and only secured by eligible ABS.

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